For Q2FY2020, RBL Bank (RBL) reported PAT of Rs. 54cr, down 80%/73% qoq/yoy primarily owing to elevated provision on new identified stressed asset (Rs. 1,800cr). However, on all other fronts, the bank reported healthy numbers viz. pre-prov profit jumped 42% yoy, NIM up 42bps/12bps yopy/qoq to highest level at 4.35% and CASA ratio up 200bps yoy to 27%.
Asset quality declines: RBL has reported an increase in the identified pool of stressed assets to the extent of Rs. 1,800cr, which was higher vs. guided figure of Rs. 1,000cr at the end of Q1FY2020. This led to the addition of Rs. 1,377cr to GNPAs during the quarter, which now stands at Rs. 1,539cr vs. Rs. 789cr in Q1FY2020. Gross NPAs as a % of loan book increased to 2.60% from 1.38% in Q1FY20. Net NPA was up from Rs. 372cr (0.65%) to Rs. 915cr (1.56%).
In the conference call, the management guided for elevated provisioning in Q3FY2020, which will normalize by Q4FY2020 as the bulk of the provisioning towards the stressed assets will be done by Q3. We believe that the bank has accounted for all stressed portfolios, which is evident from the minuscule number in SMA1 (0.45%) and SMA2 (0.39%). Bank has also provided details on exposure to real estate, construction, NBFC, and Power sectors, which are all standard and gives us further confidence in the remaining wholesale book.
We believe that RBL is earning enough PPOP for taking PCR to 50% on the stressed book by the Q3 and we expect provisioning to normalize by Q4FY2020.
Robust growth in advances; NIMs improve: During Q2FY2020, the bank's advances grew by 27% yoy, out of which retail loan book increased 62% yoy to constitute 34% of the total advances. The wholesale loans inched up 12% yoy. During the quarter, NIM increased by 27bps yoy to 4.35%, aided by higher yield on advances (up 120bps yoy) as against cost of funds (up 40bps yoy); NIMs have continued to expand since last 10 quarters. However, going forward interest reversal on slippages would keep NIMs under pressure.
Outlook & Valuation: RBL Bank's fresh set of stressed pool would push back ROA of 1.5% to Q2FY2021. We expect RBL Bank to grow its advances at CAGR of 27% over FY2019-21E. Improvement in CASA, higher share of retail book and inhouse priority sector lending will support NIM going forward. At CMP, RBL trades at 1.4x FY21E P/ABV. We maintain our Buy rating with Target Price of Rs. 410.
Shares of RBL Bank Ltd was last trading in BSE at Rs.310.1 as compared to the previous close of Rs. 288.65. The total number of shares traded during the day was 2442622 in over 30478 trades.
The stock hit an intraday high of Rs. 325 and intraday low of 281.5. The net turnover during the day was Rs. 751848651.